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How can local authorities use social investment to address homelessness?
Councils should be looking to impact investors to help ensure homeless people housed during the pandemic are able to find a stable home, says Karen Ng
Tackling rough sleeping has been a high priority during the COVID-19 crisis, with immense pressure placed on local authorities to find emergency accommodation for the country’s homeless. With hotels and office spaces being used as a last resort, the challenge now is to find and fund longer-term housing solutions.
The government recently launched the Next Steps Accommodation Programme, as part of the ‘Everyone In’ initiative, making £266m available this year to ensure around 15,000 people who had been sleeping rough have more permanent accommodation. As ever, it is critical that the funding is used efficiently to maximise its benefit, but there is also the added pressure to deploy the funds effectively within a short timeframe, as there is an expectation for all funds to be utilised before March 2021.
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There is now an opportunity for local authorities to utilise social investment as one of its tools to tackle homelessness. For the first time, the programme’s guidance document states that local authorities can use the funding provided to make a contribution to “social investment programmes” such as social property funds, which could be an easier and more cost-effective way to engage with the private rented sector, with potential to generate investment return, which can in turn be used to further support housing projects and social enterprises.
So, what is social investment? And how can local authorities use it to address homelessness?
Social investment is the use of repayable finance to help organisations achieve a social purpose. In many of these cases, the organisations receiving social investment are charities and social enterprises that have deep understanding and expertise of supporting vulnerable people.
As of 2018, we estimate the size of the UK social impact investment market to be £3.5bn and a sizeable proportion of the market consists of social property funds. They operate different strategies, from a specific focus on homelessness or supporting people with longer-term health needs, to increasing affordability and the supply of general needs housing. Their investment returns are generated from a combination of rental income (often set at Local Housing Allowance level) and potential capital appreciation.
The idea of local authorities making investments in social property funds is not new. In 2013, the London Borough of Croydon and other investors (including Big Society Capital) together invested in Real Lettings Property Fund, a fund model developed by Resonance and the homelessness charity St Mungo’s, to provide move-on housing for people in temporary accommodation or at risk of homelessness. This model has since been replicated to launch other similar funds managed by Resonance. The initiative has now surpassed £200m, with further investments from impact investors and local authorities, including the Greater London Authority, Greater Manchester Combined Authority, Westminster City Council, Lambeth Council, Bristol City Council, Milton Keynes Council and Oxford City Council, who tend to invest between £5m and £30m each into these funds.
As a social impact investor, we have seen how effectively partnerships between local authorities, charities and social property funds can address homelessness. In many cases, these partnerships offer an easier and more affordable option compared to dealing with individual private rented sector landlords, who can often be challenging to engage with due to the dispersed nature of the sector, or who may require a significant amount of incentives to provide housing for people experiencing, or at risk of, homelessness.
Social property funds that work closely with charities can also benefit from their expertise in delivering wrap-around support for their tenants. For example, Social and Sustainable Capital launched its housing fund in 2019 to provide loans between £2m and £5m to charities so they can acquire housing for vulnerable individuals. So far, they have helped deliver housing for vulnerable people across the country, including survivors of domestic abuse, vulnerable, young parents and asylum seekers.
Social property funds often have a longer-term view, with lease or loan terms exceeding five or more years, or even permanent capital in some cases. For example, Bridges Evergreen Holdings is the UK’s first patient capital vehicle set up to support mission-led enterprises. It has partnered with The Ethical Lettings Agency to set up The Ethical Housing Company, a joint venture to acquire housing in and around Teeside to provide long-term, stable accommodation for those in housing need. The partners are also working with local charities to provide extra support for vulnerable people.
With more social property funds operating in the market, local authorities now have more choices when considering the many solutions to address homelessness.
Karen Ng, investment director, Big Society Capital
